Roth 401k vs. Roth IRA

Shawn Plummer

CEO, The Annuity Expert

Roth IRA vs. Roth 401k

Key Differences

  1. Contribution Limits: Roth 401k plans have higher contribution limits compared to Roth IRAs.
  2. Income Limits: Roth IRAs have income limits for contributions, whereas Roth 401ks do not.
  3. Employer Match: Roth 401k plans may offer employer matching contributions, which are not available with Roth IRAs.
  4. Investment Options: Roth IRAs typically offer a wider range of investment options than Roth 401ks.
  5. Required Minimum Distributions (RMDs): Roth 401ks require RMDs at age 73, but Roth IRAs do not have RMDs during the account owner’s lifetime.
  6. Loan Options: Some Roth 401k plans allow loans against the account, which is not possible with Roth IRAs.

Update: Starting in 2024, RMDS are not required with Roth 401ks.

Examples

  1. High Earner: A person earning above the income limit for a Roth IRA can still contribute to a Roth 401k.
  2. Young Investor: A young investor might prefer a Roth IRA for its wider investment choices.
  3. Retiree: Someone over 73 might choose a Roth IRA to avoid RMDs.

Comparison of Roth 401k and Roth IRA

FeatureRoth 401kRoth IRA
Contribution Limit (2024)$23,000 ($30,500 if age 50+)$7,000 ($8,000 if age 50+)
Income LimitsNoneYes, varies annually
Employer MatchPossibleNot Available
Investment ChoicesLimitedBroad
Required Minimum DistributionsYes, at age 73No
Loan OptionsSometimes AvailableNot Available

Conclusion

Choosing between a Roth 401k and Roth IRA depends on individual financial situations, retirement goals, and income levels. Roth 401ks offer higher contribution limits and potential employer matches but require minimum distributions. Roth IRAs provide more investment options and no RMDs but have income and contribution limits. Understanding these differences can guide you to the best choice for your retirement planning.

Roth 401K Vs. Roth Ira

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Frequently Asked Questions

Can I have both Roth 401k and Roth IRA?

You can simultaneously have a Roth 401k and a Roth IRA.

Can I roll over Roth 401k to Roth IRA and withdraw contributions?

Yes, you can roll over a Roth 401k to a Roth IRA and withdraw your contributions at any time without penalty.

Are Roth IRA and Roth 401k the same?

No, Roth IRA and 401k accounts have some similarities but differ.

What Is The Difference Between A Roth IRA And A 401k?

The main difference between a Roth 401(k) and a Roth IRA is the source of contributions. A Roth 401(k) is an employer-sponsored retirement account where contributions are made with after-tax dollars, while a Roth IRA is an individual account where contributions come from after-tax income. Both accounts offer tax-free growth, but contribution limits and withdrawal rules vary.

Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed financial professional, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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